YY Reports Third Quarter 2019 Unaudited Financial Results

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YY Reports Third Quarter 2019 Unaudited Financial Results

GUANGZHOU, China, Nov. 13, 2019 (GLOBE NEWSWIRE) -- YY Inc. (NASDAQ: YY) (“YY” or the “Company”), a global social media platform, today announced its unaudited financial results for the third quarter of 2019.

Third Quarter 2019 Financial Highlights

Net revenues increased by 67.8% to RMB6,882.2 million (US$962.9 million) from RMB4,100.5 million in the corresponding period of 2018.

Net income attributable to controlling interest of YY Inc.1 was RMB109.9 million (US$15.4 million), compared to RMB650.7 million in the corresponding period of 2018.

Non-GAAP net income attributable to controlling interest of YY Inc.2 was RMB574.1 million (US$80.3 million), compared to RMB787.0 million in the corresponding period of 2018, primarily due to the impact of the consolidation of Bigo Inc (“Bigo”).

Third Quarter 2019 Operational Highlights

Global average mobile MAUs3 reached 470.1 million, among that approximately 77.9% were from markets outside of China.

Average mobile MAUs of imo reached 212.0 million.

Average mobile MAUs of global short-form video services increased by 670.6% to 150.4 million from 19.5 million in the corresponding period of 2018, including 100.2 million from Likee (formerly known as Like), which increased by 413.4% year over year, and 50.2 million from imo’s embedded short-form video services.

Average mobile MAUs of global live streaming services increased by 26.5% to 157.8 million from 124.8 million in the corresponding period of 2018, among that (i) 103.7 million were from China, including 39.9 million from YY, which increased by 3.0% year over year and 63.8 million from Huya, which increased by 29.1% year over year; and (ii) 54.1 million were from outside of China, including 21.9 million from BIGO LIVE, which increased by 9.7% year over year, and 32.3 million from HAGO, which increased by 92.4% year over year.

Total number of paying users4 of YY increased by 14.4% to 4.3 million from 3.8 million in the corresponding period of 2018.

Total number of paying users of Huyaincreased by 28.5% to 5.3 million from 4.2 million in the corresponding period of 2018.

Mr. David Xueling Li, Chairman and Chief Executive Officer of YY, commented, “Our solid operating and financial performance demonstrates the effectiveness of our strategies in product globalization, content innovation and technology advancement. During the third quarter of 2019, we extended the global footprints of Likee, imo, BIGO LIVE and HAGO. Through content localization, cross-platform synergy and AI technology enhancement, our global user base grew rapidly to 470.1 million. Notably, Likee, our global leading short-form video platform, hit the milestone of 100 million average mobile MAUs in the third quarter of 2019, sporting a year-over-year growth rate of 413.4%. Meanwhile, HAGO, our casual game-oriented social platform also increased its average mobile MAUs by 92.4% year-over-year to 32.3 million. In addition, our technology advancement in AI enabled us to create personalized user experience at scale, distribute our short-form video and live streaming content with precision and speed, and enhance our operating efficiency while maintaining cost effectiveness. Going forward, we seek to capitalize on the growing market demand for global video-based social media by harnessing the synergy among our various products and markets, expanding our geographic coverage, innovating our content formats and advancing our technology development.”

Mr. Bing Jin, Chief Financial Officer of YY, further commented, “During the third quarter of 2019, we generated a year-over-year net revenues growth rate of 67.8%, exceeding the high end of our previous guidance range. We also managed to sustain profitability while maintaining investment in our overseas expansion. Because we hold a strong conviction of the vast market potential for our global video-based social media platform, we are willing to be patient and prudent when striking a balance between near-term monetization and long-term market share. We believe that our abundant cash reserve combined with our methodical execution of corporate strategies will not only yield superior shareholder value, but also propel our engine of innovation forward into the next phase of our global growth cycle.”

Third Quarter 2019 Financial Results

NET REVENUES Net revenues increased by 67.8% to RMB6,882.2 million (US$962.9 million) in the third quarter of 2019 from RMB4,100.5 million in the corresponding period of 2018, primarily driven by an increase in live streaming revenues and the contribution from Bigo’s consolidation.

Live streaming revenues increased by 66.2% to RMB6,473.9 million (US$905.7 million) in the third quarter of 2019 from RMB3,894.5 million in the corresponding period of 2018, primarily attributable to (i) the continued live streaming revenues growth in YY and Huya segments, amounting to RMB1,160.6 million (US$162.4 million), driven by user growth; and (ii) the contribution from the consolidation of Bigo segment, amounting to RMB1,418.8 million (US$198.5 million).

Other revenues increased by 98.3% to RMB408.3 million (US$57.1 million) in the third quarter of 2019 from RMB205.9 million in the corresponding period of 2018, primarily driven by the increase in advertising revenues from Huya and Bigo.

COST OF REVENUES AND GROSS PROFIT Cost of revenues increased by 76.2% to RMB4,713.2 million (US$659.4 million) in the third quarter of 2019 from RMB2,674.5 million in the corresponding period of 2018. Revenue-sharing fees and content costs increased to RMB3,460.0 million (US$484.1 million) in the third quarter of 2019 from RMB2,212.6 million in the corresponding period of 2018 as a result of the increase in live streaming revenues of the Company. Bandwidth costs increased to RMB496.8 million (US$69.5 million) in the third quarter of 2019 from RMB249.5 million in the corresponding period of 2018, as the overseas user base and time spent continued to expand following the Bigo consolidation.

Gross profit increased by 52.1% to RMB2,169.0 million (US$303.5 million) in the third quarter of 2019 from RMB1,426.0 million in the corresponding period of 2018. Gross margin was 31.5% in the third quarter of 2019, compared to 34.8% in the corresponding period of 2018. In addition to the increase in revenue-sharing fees and content costs, the gross margin contraction was also caused by the fact that the Huya and Bigo segments had lower gross margins but contributed significantly greater portions of net revenues in the third quarter of 2019 compared to the corresponding period of 2018.

OPERATING INCOMEOperating expenses were RMB2,161.5 million (US$302.4 million) in the third quarter of 2019, compared to RMB864.7 million in the corresponding period of 2018. Among the operating expenses, sales and marketing expenses increased to RMB1,079.6 million (US$151.0 million) in the third quarter of 2019, primarily due to the Company’s increased efforts in sales and marketing activities in overseas markets and the impact of depreciation and amortization related to the Bigo consolidation. Research and development expenses increased to RMB673.1 million (US$94.2 million) in the third quarter of 2019, mostly due to the increase in salaries mainly due to consolidation of Bigo.

Operating income was RMB160.3 million (US$22.4 million) in the third quarter of 2019, compared to RMB610.9 million in the corresponding period of 2018. Operating margin was 2.3% in the third quarter of 2019, compared to 14.9% in the corresponding period of 2018, primarily due to the decrease in gross margin, the impact of depreciation and amortization related to the Bigo consolidation and other overseas expansion initiatives.

Non-GAAP operating income5 was RMB611.4 million (US$85.5 million) in the third quarter of 2019, compared to RMB774.2 million in the corresponding period of 2018. Non-GAAP operating margin6 was 8.9% in the third quarter of 2019, compared to 18.9% in the corresponding period of 2018.

NET INCOMENet income attributable to controlling interest of YY Inc. was RMB109.9 million (US$15.4 million) in the third quarter of 2019, compared to RMB650.7 million in the corresponding period of 2018. Net margin was 1.6% in the third quarter of 2019, compared to 15.9% in the corresponding period of 2018. The high effective tax rate in the third quarter of 2019 was primarily due to the profit (loss) structure and the different effective tax rates of YY, Huya and Bigo segments. Particularly, the Company was not getting as much benefit from losses incurred by Bigo as a majority of Bigo’s business that was subject to a low applicable tax rate in its jurisdiction.

Non-GAAP net income attributable to controlling interest of YY Inc. was RMB574.1 million (US$80.3 million) in the third quarter of 2019, compared to RMB787.0 million in the corresponding period of 2018. Non-GAAP net margin7 was 8.3% in the third quarter of 2019, compared to 19.2% in the corresponding period of 2018.

NET INCOME PER ADSDiluted net income per ADS8 was RMB1.11(US$0.16) in the third quarter of 2019, compared to RMB10.01 in the corresponding period of 2018.

Non-GAAP diluted net income per ADS9 was RMB6.42(US$0.90) in the third quarter of 2019, compared to RMB12.07 in the corresponding period of 2018.

BALANCE SHEET AND CASH FLOWSAs of September 30, 2019, the Company had cash and cash equivalents, restricted cash and cash equivalents, short-term deposits, restricted short-term deposits and short-term investments of RMB25,334.3 million (US$3,544.4 million). For the third quarter of 2019, net cash from operating activities was RMB702.1 million (US$98.2 million).

SHARES OUTSTANDING As of September 30, 2019, the Company had a total of 1,614.4 million common shares, or the equivalent of 80.7 million ADSs, outstanding.

Business OutlookFor the fourth quarter of 2019, the Company expects net revenues to be between RMB7.32 billion and RMB7.52 billion10, representing a year-over-year growth of 57.7% to 62.0%. This forecast reflects the Company’s current and preliminary views on the market and operational conditions, which are subject to change.

Recent DevelopmentsThe Company had previously announced a share repurchase program of up to US$300 million, which was approved by the Company’s Board of Directors on August 13, 2019. As of September 30, 2019, the Company had repurchased approximately US$23.7 million of its shares.

Conference Call InformationThe Company will hold a conference call on Tuesday, November 12, 2019, at 9:00 P.M. Eastern Time (or Wednesday, November 13, 2019, at 10:00 A.M. Beijing Time) to discuss the financial results. Participants may access the call by dialing the following numbers:

United States:

+1-845-675-0437

International:

+65-6713-5090

Mainland China:

400-620-8038

Hong Kong, China:

+852-3018-6771

Conference ID:

#1957529

The replay will be accessible through November 20, 2019, by dialing the following numbers:

United States:

+1-646-254-3697

International:

+61-2-8199-0299

Conference ID:

#1957529

A live and archived webcast of the conference call will also be available at the Company's investor relations website at http://ir.yy.com/.

Exchange RateThis press release contains translations of certain Renminbi amounts into U.S. dollars at specified rates solely for the convenience of readers. Unless otherwise noted, all translations from Renminbi to U.S. dollars, in this press release, were made at a rate of RMB7.1477 to US$1.00, the noon buying rate in effect on September 30, 2019 in the City of New York for cable transfers in Renminbi per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York.

About YY Inc.YY Inc. (“YY” or the “Company”) is a global social media platform. The Company’s highly engaged users contribute to a vibrant social community by creating, sharing, and enjoying a vast range of entertainment content and activities. YY enables users to interact with each other in real time through online live media and offers users a uniquely engaging and immersive entertainment experience. YY owns YY Live, a leading live streaming social media platform in China and Huya, a leading game live streaming platform in China. In addition, YY completed the acquisition of Bigo in March 2019. Bigo is a fast-growing global tech company. Headquartered in Singapore, Bigo owns Bigo Live, a leading global live streaming platform outside China; Likee, a leading global short-form video social platform; imo, a global video communication app and other social applications. YY has created an online community for global video and live streaming users. YY Inc. was listed on the NASDAQ in November 2012.

Safe Harbor StatementThis announcement contains forward-looking statements. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and similar statements. Among other things, the business outlook and quotations from management in this announcement, as well as YY’s strategic and operational plans, contain forward-looking statements. YY may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission (“SEC”), in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about YY’s beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: YY’s goals and strategies; YY’s future business development, results of operations and financial condition; the expected growth of the online communication social platform market in China; the expectation regarding the rate at which to gain active users, especially paying users; YY’s ability to monetize the user base; fluctuations in general economic and business conditions in China and assumptions underlying or related to any of the foregoing. Further information regarding these and other risks is included in YY’s filings with the SEC. All information provided in this press release and in the attachments is as of the date of this press release, and YY does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

Use of Non-GAAP Financial MeasuresThe unaudited condensed consolidated financial information is prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). YY uses non-GAAP operating income, non-GAAP operating margin, non-GAAP net income attributable to controlling interest of YY Inc., non-GAAP net margin attributable to controlling interest of YY Inc., non-GAAP net income attributable to common shareholders of YY Inc., and basic and diluted non-GAAP net income per ADS, which are non-GAAP financial measures. Non-GAAP operating income is operating income excluding share-based compensation expenses, impairment of goodwill and investments, amortization of intangible assets from business acquisitions, and gain on deconsolidation and disposal of subsidiary. Non-GAAP operating margin is non-GAAP operating income as a percentage of net revenues. Non-GAAP net income is net income excluding share-based compensation expenses, impairment of goodwill and investments, amortization of intangible assets from business acquisitions, gain on deconsolidation and disposal of subsidiary, gain on deemed disposal and disposal of investments, gain on fair value change of investments and equity investees’ investments, fair value change on derivative, interest expenses related to the convertible bonds’ amortization to face value, and income tax effects of above non-GAAP reconciling items. Non-GAAP net income attributable to controlling interest of YY Inc. is net income attributable to controlling interest of YY Inc. excluding share-based compensation expenses, impairment of goodwill and investments, amortization of intangible assets from business acquisitions, gain on deconsolidation and disposal of subsidiary, gain on deemed disposal and disposal of investments, gain on fair value change of investments and equity investees’ investments, fair value change on derivative, interest expenses related to the convertible bonds’ amortization to face value, income tax effects of above non-GAAP reconciling items and adjustment for non-GAAP reconciling items for the income attributable to non-controlling interests. Non-GAAP net margin is non-GAAP net income attributable to controlling interest of YY Inc. as a percentage of net revenues. Non-GAAP net income attributable to common shareholders of YY Inc. is net income attributable to common shareholders of YY Inc. excluding share-based compensation expenses, impairment of goodwill and investments, amortization of intangible assets from business acquisitions, gain on deconsolidation and disposal of subsidiary, gain on deemed disposal and disposal of investments, gain on fair value change of investments and equity investees’ investments, fair value change on derivative, interest expenses related to the convertible bonds’ amortization to face value, accretion, cumulative dividend and deemed dividend to subsidiaries’ preferred shareholders and income tax effects of above non-GAAP reconciling items and adjustment for non-GAAP reconciling items for the income attributable to non-controlling interests. After the non-GAAP reconciliation, non-GAAP net income attributable to controlling interests of YY Inc. is equal to the non-GAAP net income attributable to common shareholders of YY Inc. Basic and diluted non-GAAP net income per ADS is non-GAAP net income attributable to common shareholders of YY Inc. divided by weighted average number of ADS used in the calculation of basic and diluted net income per ADS. The Company believes that separate analysis and exclusion of the non-cash impact of above reconciling items adds clarity to the constituent parts of its performance. The Company reviews these non-GAAP financial measures together with GAAP financial measures to obtain a better understanding of its operating performance. It uses the non-GAAP financial measure for planning, forecasting and measuring results against the forecast. The Company believes that non-GAAP financial measure is useful supplemental information for investors and analysts to assess its operating performance without the non-cash effect of (i) share-based compensation expenses and amortization of intangible assets from business acquisitions, fair value change on derivative, interest expenses related to the convertible bonds’ amortization to face value, which have been and will continue to be significant recurring expenses in its business, (ii) impairment of goodwill and investments, gain on deconsolidation and disposal of subsidiary, gain on deemed disposal and disposal of investments, gain on fair value change of investments and equity investees’ investments, and accretion, cumulative dividend and deemed dividend to subsidiaries’ preferred shareholders, which may not be recurring in its business, and (iii) income tax expenses and non-GAAP adjustments for net income (loss) attributable to non-controlling interest shareholders, which are affected by above non-GAAP reconciling items. However, the use of non-GAAP financial measures has material limitations as an analytical tool. One of the limitations of using non-GAAP financial measures is that they do not include all items that impact the Company’s net income for the period. In addition, because non-GAAP financial measures are not measured in the same manner by all companies, they may not be comparable to other similar titled measures used by other companies. In light of the foregoing limitations, you should not consider non-GAAP financial measure in isolation from or as an alternative to the financial measure prepared in accordance with U.S. GAAP.

The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, or as a substitute for, the financial information prepared and presented in accordance with U.S. GAAP. For more information on these non-GAAP financial measures, please see the table captioned “YY Inc. Reconciliations of GAAP and Non-GAAP Results” near the end of this release.

1 Net income attributable to controlling interest of YY Inc., is net income less net (loss) income attributable to the non-controlling interest shareholders and the mezzanine equity classified as non-controlling interest shareholder.

2 Non-GAAP net income attributable to controlling interest of YY Inc. is a non-GAAP financial measure, which is defined as net income attributable to controlling interest of YY Inc. excluding share-based compensation expenses, impairment of goodwill and investment, amortization of intangible assets from business acquisitions, gain on deconsolidation and disposal of subsidiary, gain on deemed disposal and disposal of investments (deemed disposal refers to dilution of equity interest in equity-method investments), gain on fair value change of investments and equity investees’ investments, fair value change on derivative, interest expenses related to the convertible bonds amortization to face value, income tax effects on non-GAAP adjustment and non-GAAP adjustment for net (loss) income attributable to non-controlling interests shareholders. These adjustments amounted to RMB464.1 million (US$64.9 million) and RMB136.3 million in the third quarters of 2019 and 2018, respectively. Please refer to the section titled “Reconciliation of GAAP and Non-GAAP Results” for more details.

3 Refers to mobile average monthly active users. Average mobile MAU for any period is calculated by dividing (i) the sum of the Company’s mobile active users for each month of such period, by (ii) the number of months in such period.

4 Refers to a registered user that has purchased virtual items on YY’s platforms at least once during the period presented.

5 Non-GAAP operating income is a non-GAAP financial measure, which is defined as operating income excluding share-based compensation expenses, amortization of intangible assets from business acquisitions, impairment of goodwill and investments and gain on deconsolidation and disposal of a subsidiary. Please refer to the section titled “Reconciliation of GAAP and Non-GAAP Results” for details.

6 Non-GAAP operating margin is a non-GAAP financial measure, which is defined as non-GAAP operating income as a percentage of net revenues. Please refer to the section titled “Reconciliation of GAAP and Non-GAAP Results” for details.

7 Non-GAAP net margin is non-GAAP net income attributable to controlling interest of YY Inc. as a percentage of net revenues.

8ADS is American Depositary Share. Each ADS represents twenty Class A common shares of the Company. Diluted net income per ADS is net income attributable to common shareholders of YY Inc. divided by weighted average number of diluted ADS.

9 Non-GAAP diluted net income per ADS is a non-GAAP financial measure, which is defined as non-GAAP net income attributable to common shareholders of YY Inc. divided by weighted average number of ADS used in the calculation of diluted net income per ADS. Please refer to the section titled “Reconciliation of GAAP and Non-GAAP Results” for details.

10 The outlook of net revenues for the fourth quarter of 2019 includes the impact from Bigo’s consolidation. However, when calculating the year-over-year growth rate, Bigo’s net revenues in the same period of 2018 was not included as the part of denominator.

Class A common shares (US$0.00001 par value; 10,000,000,000 and 10,000,000,000 shares authorized, 981,740,848 shares issued and outstanding as of December 31, 2018; 1,300,746,944 shares issued and 1,287,878,395 shares outstanding as of and September 30, 2019, respectively)

59

79

11

Class B common shares (US$0.00001 par value; 1,000,000,000 and 1,000,000,000 shares authorized, 288,182,976 and 326,509,555 shares issued and outstanding as of December 31, 2018 and September 30, 2019, respectively)

21

24

3

Additional paid-in capital

11,168,866

21,560,965

3,016,490

Statutory reserves

101,725

101,725

14,232

Retained earnings

6,913,469

10,157,351

1,421,066

Accumulated other comprehensive income

336,152

1,162,927

162,699

Total YY Inc.’s shareholders’ equity

18,520,292

32,983,071

4,614,501

Non-controlling interests

2,856,839

5,252,171

734,806

Total shareholders’ equity

21,377,131

38,235,242

5,349,307

Total liabilities,mezzanine equity and

shareholders’ equity

25,768,045

50,565,922

7,074,435

(1) The Company has adopted ASC842 “Leases” beginning January 1, 2019 using the optional transition method. The only major impact of the standard is that assets and liabilities amounting to RMB145.2 million and RMB141.2 million, respectively, are recognized beginning January 1, 2019 for leased office space with terms of more than 12 months.

Income (loss) before share of income in equity method investments, net of income taxes

518,006

123,170

(484,630)

-

156,546

21,902

Share of income in equity method investments, net of income taxes

21,189

72

-

-

21,261

2,975

Net income (loss)

539,195

123,242

(484,630)

-

177,807

24,877

(1) In 2019 the segment of “YY Live” was renamed as “YY”.

(2) The elimination mainly consists of revenues and expenses generated from services among YY and Huya segments, and interest income and interest expenses generated from the loan between YY and Bigo segments.

(3) Share-based compensation was allocated in cost of revenues and operating expenses as follows: